IRA Distributions, 401(k) Contributions and Other Critical Decisions

Sure, there are halls to be decked, gifts to be wrapped and feasts to be prepared. But now is also the time to make sure you meet important year-end financial deadlines.

Here are some items to cross off your to-do list before the ball drops this New Year's Eve:

1. Boost your 401(k) contribution.

Now is your chance to temporarily increase your 401(k) contribution—a particularly smart move if you're expecting a bonus of some kind, says Greg McBride, senior financial analyst at Bankrate.com. "You want to stuff as much money as you can into your 401(k) by Dec. 31," Mr. McBride says. "You can never go back and make additional contributions for this year…even if you hit the lottery the first week of January."

Once you've increased your end-of-year contribution, you can always reduce it after the new year, he says.

People who are under 50 years old as of Dec. 31 can contribute up to $17,500 of their own money this year (not counting employer matches, that is), while those who are 50 or older by that date may contribute up to $23,000. Note: You don't have to wait until you're 50 to make the contribution.

Since you can make contributions only from your paycheck, make sure to leave enough time for your adjustments to kick in before the end of the year, Mr. McBride says. For example, if you're paid the first and third weeks of the month, don't wait until the last week of December to update your contribution preferences. It's a good idea to verify with your employer that a change you make now would take effect soon enough to count for 2013, he adds.

ENLARGE

Rob Shepperson

2. Fund 529 accounts.

The door closes Dec. 31 on 2013 contributions to 529 college-savings accounts, so it's a good idea to get the ball rolling now on any end-of-year money transfers you plan to make, Mr. McBride says. The accounts allow post-tax funds to grow tax-free as long as they are used for qualified education expenses. Contributions are limited to "the amount necessary to provide for the qualified education expenses of the beneficiary," according to the Internal Revenue Service, and Federal gift taxes may apply if your contributions exceed the annual exclusion ($14,000 for 2013). (See irs.gov for more information.)

You'll want to pay particular attention to your fund contributions if you live in a state, such as New York or North Carolina, that offers a state-tax deduction for contributions to the in-state plan up to a certain limit. Making such contributions in the next month could mean you get some of your state-tax money back for 2013, Mr. McBride says.

3. Take the required minimum IRA distribution.

A retired person 70½ or older must take her required minimum distribution from her individual retirement account for 2013 by Dec. 31, says Ken Moraif, senior adviser at Money Matters, a Plano, Texas-based wealth-management and investment firm. (For a guide to calculating your required minimum distribution, see IRS publication 590.) If you fail to take your required minimum distribution, the amount not withdrawn will typically be taxed at 50%, according to the IRS.

But for those turning 70½ this year, there's an art to taking your first required minimum distribution, Mr. Moraif says: You have the option to take it before New Year's, or you can delay it until April 1, 2014. On the one hand, it might be advantageous to wait until next year, keeping your funds invested in the tax-deferred account for another few months, Mr. Moraif says.

On the other hand, deferring the distribution means you'll have to take two distributions in 2014, he says.

So make sure to do the math: If the income from the additional distribution would bump you into a higher tax bracket, it's unlikely that you'll come out ahead, Mr. Moraif says, and you're probably better off taking that first distribution before the end of this year.

4. Book capital losses.

Record capital losses by year's end, says Mike Piershale, president of Piershale Financial Group in Crystal Lake, Ill. You can use capital losses to offset any capital gains tax-free, Mr. Piershale says.

If your losses exceed your gains, you can also deduct up to $3,000 in unused losses from your ordinary income, he says.

To make the most of these allowances, Mr. Piershale suggests "loss harvesting." If you're carrying investments at a loss—say, mutual funds that have dipped several thousand dollars in value since you purchased them—you might consider selling them by Dec. 31 to realize capital losses, he says, then use these to offset gains from other sources.

Moreover, if you like the mutual funds and believe they are solid long-term investments, you can buy them back in the new year while still reaping the tax benefit of the capital loss.

But be aware that you have to allow at least 31 days to pass after you sell stocks before buying them back, says Mr. Piershale.

5. Make charitable contributions.

As you take stock of your financials, keep in mind that charitable donations you make by the end of the year will typically be deductible from this year's taxes, Mr. McBride says. This includes donations to most (nonprofit) colleges or universities, as well as the value of donations "in kind," such as items donated to a charity thrift store. Charitable contributions are deductible only if you itemize deductions, according to the IRS.

6. Make gifts to individuals.

You can make tax-free gifts to individuals—such as a relatives or friends—totaling up to $14,000 per recipient this year, according to the IRS. When it comes to your annual tax-free gift allotment, there's no rollover to next year, says Mr. Moraif. "If you don't use it this year, you lose" the opportunity to give this year's tax-free gift amount, he says.

7. Group deductible expenses.

Mr. Moraif recommends "bunching together" your tax-deductible expenses for the end of this year, or else delaying them until the new year—especially if you expect a significant change in your annual income.

Examples of such expenses include non-life-threatening medical procedures or this year's property taxes (deadlines vary by state or county, but sometimes extend into the new year), he says.

If, for example, you are retiring and expect a decrease in your income next year, you might pay your property taxes by Dec. 31 so that you can deduct the amount from this year's taxes and hold onto more of your income, says Mr. Moraif.

If you inherited an IRA from a non-spouse, you must take your required minimum distribution before the end of the year. You must execute any Roth IRA conversions before the end of the year, though you may be able to undo ("recharacterize") them until next October. A gift (e.g. of appreciated securities) to a charity is for the calendar year in which they actually receive the gift - so hurry!

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